News ID: 219113
Published: 0851 GMT July 31, 2018

Impact of trade tariffs on two US firms

Impact of trade tariffs on two US firms
Caterpillar says higher prices will offset expenses tied to new trade tariffs. (GETTY IMAGES)



New trade tariffs are raising costs for US businesses, testing their power to pass on the expenses to consumers.

US equipment maker Caterpillar said strong demand had allowed it to hike prices to offset $100 million-$200 million in higher steel and aluminum costs, BBC reported.

But while higher prices are shielding some firms, others are under strain.

On the same day, food processor Tyson Foods cut its profit forecast, saying retaliatory duties on US beef exports had lowered US meat prices.

It said it expects adjusted earnings per share in the range of $5.70-$6 for its 2018 financial year due to a surplus in US supply caused by the tariffs. That was down from its earlier $6.55-$6.70 forecast.

Lower prices for beef have also reduced demand for chicken, the firm added.

"The combination of changing global trade policies here and abroad, and the uncertainty of any resolution, have created a challenging market environment of increased volatility, lower prices and oversupply of protein," said Tom Hayes, Tyson Foods president and chief executive officer.

The updates were the latest from businesses explaining how trade disputes are raising costs and shifting demand for products.

In March, the US announced tariffs on steel and aluminum, prompting China, the European Union, Mexico and other places to retaliate with import taxes on US products.

Separately, the US and China have also imposed tit-for-tat tariffs of $34 billion on the other country's goods, in a row over intellectual property practices and state subsidies.

While some firms, including Caterpillar, have said they will pass on higher costs to consumers in the form of higher prices, others are more constrained.

Harley Davidson told investors it plans to shoulder the cost of European tariffs on US-made motorcycles in order to remain competitive. It is also grappling with higher steel and aluminum prices.

Overall, analysts expect the duties to have a relatively modest impact.

Analysts at US bank Wells Fargo estimate that the US tariffs so far will boost inflation in the US by 0.1 percent, but said that the rise could be softened by price declines for products targeted by other countries for retaliation.

The changes come as higher fuel and labor costs fuel stronger inflation in the US.

The index for producer prices climbed 3.4 percent over the 12 months to July, the strongest annual gain since November 2011, according to figures from the US Labor Department.

The consumer price index increased 2.9 percent over the 12 months to June.

With wage growth still relatively slow, economists say it's not clear how many increases households can handle before they reduce spending.

   
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